Former Chipotle executive Brian Niccol, who presided over a doubling of Chipotle's (CMG -0.60%) sales in his six-year tenure, was seen as such a big get for Starbucks (SBUX -0.24%) that shares surged 25% the day it announced he was the incoming CEO.
But that was then. Since September 9, 2024, when Niccol took over as CEO, Starbucks shares have fallen by 6%. For context, the Consumer Discretionary Select Sector SPDR Fund (XLY 0.66%), which tracks consumer discretionary companies in the S&P 500, has returned 31% during Niccol's tenure as Starbucks CEO.
In the company's most recent earnings report, Niccol declared that "our work is gaining momentum" and argued that Starbucks is in the early stages of a turnaround in the United States, where over 17,000 of the company's 41,000 stores are located.
A year after taking the helm, there's clearly "more work to do," as Niccol acknowledged. Over the last year, same-store sales have fallen by 2% globally. And fiscal Q3 2025 was the sixth quarter in a row where same-store sales fell, while net income fell from $1.05 billion a year ago to $558 million today. And just last month, Niccol announced the closing of 1% of North American stores, calling them "unable to create the physical environment our customers and partners expect."
Turnarounds can take time, as Niccol saw in his ultimately successful effort at leading Chipotle's turnaround. So, can the coffeehouse giant come back?
The case for a comeback
On September 10, 2024, Niccol published a memo promising to return Starbucks to its former identity as "a welcoming coffeehouse where people gather." He proceeded to implement some notable changes in customer service, requiring baristas to greet customers, make eye contact, and write genuine messages on each coffee cup. He also slashed 30% of menu offerings, saying Starbucks' selections had become "overly complex."
Image source: Company Presentation.
Now there are signs that Niccol's vision is becoming reality. Starbucks' "Green Apron Service" program, rolled out in August, is already boosting customer satisfaction and sales in the 1,500 Starbucks locations where it has been tested. The initiative is the largest investment Starbucks has ever made in operating standards and customer service. In the company's most recent earnings report, Niccol credited the improvements to factors such as a record 98.2% shift completion rate, a reduction in customer complaints, and customer value perceptions at two-year highs. Particularly encouraging are the company's gains among Gen Z and millennial consumers, which can be seen in double-digit sales growth in locations around colleges and universities.
Internationally, the picture for Starbucks looks bright. Last quarter, Starbucks' international business logged more than $2 billion in quarterly revenue for the first time. Same-store sales improved in Canada, while growing by low-single digits in the U.K. In Europe, the Middle East, and Africa, same-store sales were up year-over-year. In Latin America, Starbucks maintained double-digit year-over-year growth in revenue and operating income. Perhaps most bullishly, China locations averaged 2% growth in same-store sales, the third consecutive quarter of growth in the region. Overall, international locations brought in record-breaking revenue.
Same-store sales declined by 2% in the U.S., representing the company's biggest pain point. But management is well aware of this and is taking steps to reinvigorate U.S. sales through a new coffeehouse uplift program, which slows the opening of new stores in favor of spending $150,000 per store to make locations warmer and inviting. For now, the program is accelerating in New York City, with plans to spread to Southern California in Q4. By the end of calendar year 2026, Starbucks plans to bring its uplift program to at least 1,000 U.S. stores.
Why the turnaround could fail
Starbucks' 2% decline in U.S. same-store sales is concerning, given that the U.S. is its largest market (this decline came before Niccol's decision in September 2025 to shut down hundreds of North American stores). But the company also faces challenges in China, where rivals such as Luckin Coffee (LKNC.Y 1.42%) are offering local flavors and cheaper prices.
To give a sense of the strength of the competition, consider this: Luckin Coffee, which launched seven years ago, now generates more revenue in China than Starbucks. Niccol expressed his alarm at this, a month after starting as CEO, when he called Chinese competition "extreme."
While Niccol heralded initiatives like new customization options and beverage innovation to broaden their customer base in China, the biggest drag on Starbucks' 7,600 Chinese locations may be something management is powerless to stop: a painful economic slowdown in China, as the country's National Bureau of Statistics releases data announcing slowing retail sales, falling industrial production and investment, and rising unemployment. A recession in China could cost Starbucks even more market share at the hands of its rivals offering cheaper prices.
Finally, investors should assess whether a successful turnaround is already priced into Starbucks shares. With a forward price-to-earnings ratio of 30.8, compared to 22.6 for the average S&P 500 company, shares could already be priced for a near-best-case scenario.
Is Starbucks a buy?
Ultimately, there are too many question marks around Starbucks' ongoing turnaround to make shares a buy today. Combined with the length of the turnaround, with initiatives and redesigns that Niccol expects to stretch into 2027, and Starbucks' already hefty valuation, investors would be wise to hold back and wait for more signs that the company is returning to its glory days.
In the meantime, October may provide the next tea leaf to read into the company's prospects. Later this month, Starbucks is expected to declare its next quarterly dividend, which it has raised in each of the last 15 years, including a 7% increase in 2024.
CEOs can always put the best possible spin on things, but dividend checks either increase or they don't. A 16th dividend hike will be a sign that Starbucks is weathering its current woes, while paying investors a yield that's more than double the S&P 500 average in return for their patience.
